When to invest in marketing

> direct outreach to key customers

are you talking about b2b?

I don't know what you have in mind. Sounds like you are suggesting companies should start calling me or knocking on my door instead of puting ads on google search results. That doesn't sound great.

There's no such thing as an overall average ROI.

"Good" marketing, for a B2C company, is often defined as a 3x CAC/LTV ratio and 12 month payback. That means for every $1 you spend on advertising you make $3 in gross profit, and you get back $1 after 12 months. This is fairly healthy for many businesses, but some businesses may be looking for a 1 month payback, or may be looking for a 5x LTV. It's also possible to trade off LTV and payback, the latter may be more important for a fast growing business so that they're not tying up capital, and they may not yet have enough data to accurately predict 3 or 5 year LTV anyway.

In reality though these things fluctuate all the time, you may have 2-5 marketing channels at a small company (e.g. FB, IG, Adsense, YT, direct mail, out of home, etc), of which some will be better and others will be worse, and you blend them together, changing proportions over time as channels change in effectiveness or cost.

> We might see 4,000-10,000 advertisements a day[1].

Yeah, that’s definitely false. At best 100+.

That’s why the PPC or PPE model is so appealing—you know that you’ve stood out from all the other messaging they saw that day, at least a little bit. Their own analytics or sales funnels take over to assign a value to the click to compare to what they paid.

(That’s not to say everyone should be spending money on ads, that currently spends.)

"We might see 4,000-10,000 advertisements a day[1]. Do you remember two advertisements you saw today?"

Thank god for adblockers and pity those who do not have one or do not know firefox on android still allows them.

> Do you remember two advertisements you saw today?

Maybe I’m in the minority, but I absolutely despise advertising. The only advertisements I ever remember are due to hating them more then the others for some reason- like being even more aggressive and in my face. There has to be some tipping point where advertising does more harm for the advertisers then good.

Here are the economics of ad spend from when I worked at Travelocity nearly a decade ago.

For an e-commerce business the goal is what's called conversion, which is when a user makes a product purchase. The margins on conversion vary by product and product segment. At that time most people came to travel sites to book airfare and the travel sites just basically resold what the carriers had on their own sites plus a $7 service fee charged by the carriers. Hotels were more lucrative averaging a margin closer to $50 per purchase. Travelocity had figured out some pricing algorithm that dominated the industry for packages where packages were flight plus hotel and optionally rental car. I can't remember the margin for Travelocity packages but I want to say it was around $300 per purchase.

The problem with conversion on e-commerce sites is time. The more expensive the product the more time the user will spend investigating a purchase. The more they will hop between various different competing web sites. Air purchases had a time realization of a few hours, hotels about a week, and packages were about 3 weeks. That means you do anything to induce increased conversion it will be 3 weeks before you should expect to see money in the bank, which complicates analysis of what went right and what went wrong. This means A/B testing becomes supremely important.

Ad spend was the opposite across the board. Ad spend would always bring tremendous traffic to the site but almost never would it increase conversion. However once you have eyes on pages you can generate revenue by other means such as affiliate programs and certainly with ads on your own site. The most amazing thing about ads whether they bring people to your site and cost you money or they are on your own site and generate you money is that the money spent/realized occurs in real time. Suddenly your analysis becomes stupid simple.

Ad traffic is dirty traffic though. Ads that cost you money rarely increased conversion and ads on your own site substantially detracted online traffic, by as much as 15% in a near term and much more gradually over a longer time horizon. The margins on ads is next to nothing so the more you invest in it the more you must invest in it to justify the both the spend and decreased traffic volume. This is what I would refer to as a drug addition. They had an immediate high, it was killing their business, and they only knew how to increase ad participation. Toxic.

that's the problem with google's monopoly on advertising - we can't know

> Do you remember two advertisements you saw today?

Thanks to uBlock, Newpipe and the like, I generally see less than two advertisements a week.

I’ve been a pure software engineer for close to a decade now, but before that I was a data analyst/scientist working with a marketing team, including their paid ad ppl.

We ran some legit experiments with ads, where we didn’t just count ppl who saw the ads then later converted (how Google, FB, etc. want you to “measure” impact), we compared them to actual control groups. We did find most types of ads to not be worth the $$.

However, remarketing did seem to be worth it, at the time, for us. This is when you generate interest in your product through other avenues (organic content marketing, organic social media marketing, PR, attending industry events, etc.), then when ppl show some interest in your product (visit your website), but don’t convert, you cookie them and keep showing them ads all around the internet. These ppl are already legit interested, they’re gonna pay more attention to the ads, and keeping your product top of mind can be enough to get them over the line to conversion.

"Do you remember two advertisements you saw today?"

https://www.youtube.com/watch?v=x8iXj2vkpJI

You will remember at least one...

Author of article here. I don't think there is an average but as a child comment mentioned, you'd usually aim for 3x return on your ad spend. But it really depends on your product.

If you're selling expensive B2B solutions the customer journey will look very different to a consumer product - direct ads might be a terrible idea because no business clicks on a facebook ad and then decides to invest in an expensive enterprise software.

You might be better off investing in content, make a custom landing page for that lead, account based marketing etc - and not do any AdSense.

But yes, you do have to evaluate your marketing mix and channels against your customers purchase journey. Will write more about that in the upcoming posts :)

Yeah, and writing this blog post is a major red flag for this company, no matter how you shake it out. Either they are lying, or grossly incompetent.

I don’t know the specifics, but a company I worked at definitely decided to get ‘serious about ads’ by hiring a director of marketing and seemingly giving him an unchecked budget.

About 2 years later, he left the company. Very few - if any - customers were generated, but there was a sizable Google Ads spend.

I think the business owners had quite good luck with hiring talented people and letting them get to work, fairly hands-off. The guy spoke well and could quote many marketing gurus. I never found what he said to be particularly useful for the company, but I assumed he was getting results since someone was keeping him around.

I believe many owners of successful businesses have blind spots and need people they can turn to fill them. Sometimes that goes poorly.

Right now I’m fixing a similar snafu where I’m halving a not-insignificant AWS monthly bill for a company due to an ‘expert’ doing something very expensive. Like, 2 weeks of work will cut many developers annual salaries worth of AWS spend a year. Sometimes you get bad advice and you’re growing & making enough money that you can ignore the seemingly huge inefficiencies.

> This makes as much sense as saying that a company spent $1.5 MM on five engineers for a year without a single line of code ever being written.

I mean, if you change this to ‘functional line of code’ or ‘usable line of code’ I have definitely seen that occur with one or two developers over my career.

I don’t think it’s the norm, but I do think it happens.

Hey there - author of article here. This story is 100% true, believe it or not. The problem for them was mainly that the agency running their ad account counted "demo requests" as their top metric and mistakingly counted all demo requests that came in as attributed to the marketing spend. So they reported on faulty numbers during the entire year. Hubspot showed that direct ads actually didn't work at all (mainly because they didn't really have PMF yet). Needless to say, that agency got fired pretty quickly.

While this example is admittedly extreme, I think you’re severely underestimating the amount of bullshitters and charlatans that are able to secure VC funding.

What is a "cope post"?

The article mentions a bad choice (not by the author) but moves on to talk about how to make better choices and never talks about the mistake again.

Did you read past the first paragraph?

> Feels like a cope post and how much nobody cares about your product.

I struggle to see how one could read the article to the end and walk away with that sentiment.

> But how do you know if your business is ready to invest in marketing? To answer this question, you'll need to understand if your company have some form of product market fit - PMF.

Do these customers spend >$100/mo plus enough to cover other expenses? If not then it's not worth the ad spend.

That's a neck.

This isn't very kind, in fact it's an outright personal attack. Worse, it misses the point, it's about making a quick back-of-the-napkin calculation as business consultant while making OKRs.

The problem with adding segmentation for more accurate calculations is there's always one more person who can sneer it's inaccurate because there wasn't enough segments. This type of person tends to move on from marketing / data science quickly, real world constraints are very frustrating to them

I wouldn't necessarily say organic is always better than paid, although that's a reasonable generalization. I think of it in terms of the yield curve - organic tends to be high quality but doesn't always scale. You drop your efficiency in the marketing media mix as you scale to reach a ROAS that meets the business need.

Hi there, author of article here - I definitely see your point. I might have been a bit to general here, it's like another poster here says, it's very much napkin math. Yes, "better leads" are ofc always better than randos - but these numbers are from of a made up business, not the company mentioned in the beginning so if we imagine that 90% of the users already comes form paid, then we might want to invest more in paid. And if organic, maybe we invest in content and SEO instead.

Overall, when setting objectives it is still very important to have some numbers to target - you can even change these targets later if it turns out there is a better way of getting those 1066 customers.

Hey there - author of article here. Took this from another comment I wrote:

The problem for them was mainly that the agency running their ad account counted "demo requests" as their top metric and mistakingly counted all demo requests that came in as attributed to the marketing spend. So they reported on faulty numbers during the entire year. Hubspot showed that direct ads actually didn't work at all (mainly because they didn't really have PMF yet). Needless to say, that agency got fired pretty quickly.

And you also have to keep your products consumer journey in mind - the B2B selling cycle works very differently from e.g. B2C, direct ads might not work at all or should be used at a very specific part of the journey.

Exactly, it is playing Battleship, not a money printing machine.

It happens more often than people think!

I would suspect it was "here is a marketing budget, go market" and someone who maybe didn't know better / much about marketing just spent it while nobody was paying attention. That might be a really short article.

Would it be that interesting? "Management makes unquantifiable decisions based on feelings vs data" is hardly an interesting story.

It'd be great to seem more from the Exec class talk about identifying stupid crap like this blunder and doing something about it.

You almost never hear management talk about near misses. "We were going to buy that giant ERP for X millions but we did a weekend of reading and found out the vendor was two guys' etc etc.

This sort of waste has the risk of wrecking a business, putting multiple jobs and lives at risk etc. Yet, if some pleb on the shop floor is wasteful with company material or time, consequences almost instantly follow. It'd be great if this ended with, and then we made the money back by sacking the marketing team and hiring one person who had a clue.

I want to know what went into this $1.5mil waste of a campaign.

Not all campaigns are created equally. Running a bad campaign and then opining about marketing in general is like buying a single car off craigslist and then remarking on the features of a new Maserati.

Hey, author of article here - I'm planning to write more about this later in the series but it didn't really fit the story about PMF & setting objectives so I could not round it out more in this one unfortunately.

But I've realised I might have to write a separate post just about this specific incident and what we did to bring the spend and results back on track!

Hey, author of article here - I'm sorry if you felt baited, I'm planning to write more about this later in the series but it didn't really fit the story about PMF & setting objectives so I could not round it out more in this one unfortunately.

But I've realised I might have to write a separate post just about this specific incident and what we did to bring the spend and results back on track!

Also, I'm just describing how I was taught to market stuff - I've worked with a wide array of startup and Fortune 500 companies and it has been quite formulaic for all of them. But obv there are more than one way to do so. I'm actually a developer now so don't do any consulting any more - merely writing this down for my own record and if it can help/inspire anyone else :) Thank you for reading!

You just enjoyed reading a made-up self-promotion piece from a marketing consultant, so perhaps good marketing works.

Thank you! Feel free to drop your email in the header of the site to know when I post my next article :)

Hi there - author of article here. The problem for them was mainly that the agency running their ad account counted "demo requests" as their top metric and mistakingly counted all demo requests that came in as attributed to the marketing spend. So they reported on faulty numbers during the entire year. Hubspot showed that direct ads actually didn't work at all (mainly because they didn't really have PMF yet). Needless to say, that agency got fired pretty quickly.

I've realised I might have to write a separate post just about this specific incident and what we did to bring the spend and results back on track. Thanks!

Author here - absolutely, fully agree! The full story of how this happened did not with with the overarching theme of objectives and KPIs so will have to write up a full story about this later. But the later posts in this article series will hopefully touch on all the factors you mention. Thanks for reading!

And what would be the point of fake Internet points? Unless this leads neither to consumers

That is why I flagged it, as should you, and it should be removed from the site. It is low effort and misleading at best.

Hey there - author of article here. As the article mentions in the beginning, this is a spend that happened before I started consulting them - and the blog has nothing to do with the actual company.

Also, I'm a developer now so don't do consulting any more.. Merely writing this down for my own record and if it can help/inspire anyone else so not looking for free advertising. But thank you for reading!

This is just a bait to tell you not to invest in marketing without knowing your customers (which is pretty obvious but many companies just don’t bother taking a good look at their customers.

This is such a crazy take. They made Uber (a meme word) into a household name. It's like saying you disbanded 2/3 of your army after taking over the continent, and nothing happened. So they were useless all along! Well, try it next time without the army.

Author here - this is 100% true! Always get another domain for your sales emails, warm it up with a email "warmup" service and off you go :)

Author here. The problem for them was mainly that the agency running their ad account counted "demo requests" as their top metric and mistakingly counted all demo requests that came in as attributed to the marketing spend. So they reported on faulty numbers during the entire year. Hubspot showed that direct ads actually didn't work at all (mainly because they didn't really have PMF yet). Needless to say, that agency got fired pretty quickly..

Yeah, talk about mismanagement.

> This is why accelerators like YC prefer cold outreach / emailing prospects during the early days of your company - it's free.

It’s not free.

I’m not sure what the rest of the article says but if the rest of it is as good as the beginning…

Why year? Needs to choose _some_ timeframe, otherwise the KR is irrelevant. Businesses generally plan quarterly (3 month spans) and yearly (12 months).

You're free to use ranges in OKRs if desired.

Identifying rules / guidelines are "not even wrong" when writing OKRs, OKR = Objective + Key Result(s) usually a sentence each, in bullets.

It's better to focus on setting goals separately from setting rules, and humans being humans, you can't really identify a full set of rules that will prevent each and every form of unintended consequence

(also, note this is just fermi estimates in a blog post for a marketing consultant, they're focused on laying out a hypothetical, theres all sort of layers and interactions in a business)

Author here - in my experience, industry trade shows are terrible money drains if you don't have PMF. They can be more expensive than many online ad campaigns! I had a client who spent Over $50K on going to one, with booth and everything - probably got around 50 leads and only a handful turned into customers.

Hey there, author here! I fully agree - this is exactly where I want to get to with my article series. This is just the first post, talking about objectives. If you click on the next article, it talks about branding and after that, how to define your target audience. More to come! This introductory story was just a horror story of what can happen without great PMF or clearly defined marketing / advertising objectives. Thank you for reading!

Author of article here and massive Studio Ghibli fan. Can't wait to see this movie!

You don't really deserve a response, but what are you talking about?

Bud Lite sent cans to multiple influencers as part of a larger campaign, one of whom happened to be a trans woman. They didn't spend millions of dollars on this campaign; they didn't try to sell these cans; they were just commemorating (in a corporate-y way) an influencer they did a brand deal with.

It's sad how much hate you have toward someone for simply existing. Why do you feel the need to bring it up when it's completely irrelevant?

Author here - thanks for a thoughtful comment! :)

The problem for them was mainly that the agency running their ad account counted "demo requests" as their top metric and mistakingly counted all demo requests that came in as attributed to the marketing spend. So they reported on faulty numbers during the entire year.

Hubspot showed that direct ads actually didn't work at all - there were only 2 identified leads (who downloaded some ebook) and the rest were anonymous users. Hubspot cookies them so if they would have gone on to get a demo, a trial or become customers, we'd know. They didn't insanely enough! We could also check IP ranges of companies visiting through ads, and they were not signed up as customers at any point.

100% agree that organic / product led growth is the way to go in the beginning. I should probably reword the article and say to not focus on "Paid" marketing - you still want to start thinking about organic etc. Thanks!